The International Monetary Fund 2015: Reform needs and options

The concentration on security problems in the first decade of the twenty-first century has curtailed the efforts of the international community to improve the stability of the global financial system. This is regrettable since the current phase of relative financial market stability would provide an ideal environment to carry out a fundamental reform of the so-called international financial architecture.The Asian crisis of 1997-98 impressively demonstrated the international community's difficulties in acting effectively to either prevent or arrest financial crises. It was precisely its main instrument for preventing and dealing with such crises - the International Monetary Fund - that proved to be a less than convincing crisis manager. Following its controversial approach to crisis mangement during the Asian financial crisis, the Fund's legitimacy has declined considerably among large parts of its membership. If this trend is to continue, the effectiveness of the international community's central instrument to foster global financial stability will be further eroded to the detriment of not only developing and emerging economies, but of industrial economies alike.This study sketches out a proposal for reform that aims at increasing the Fund's effectiveness in preventing and arresting financial crises while at the same time ensuring its ability to continue the provision of comprehensive financial data on and economic policy advice to its members. At its core is the proposal to introduce a graduated membership consisting of a basic membership available to virtually all current members as well as a privileged membership for a subset of members satisfying a number of additional stability requirements. (SWP-Research Papers / SWP)